The Senate Tax Bill Might Just Pass Thanks to a Few Harebrained Compromises

By
Jordan Weissmann

Nov 28, 2017,
7:34 PM

What are you thinking Susan?

Chip Somodevilla/Getty Images

The Senate tax bill seems to be moving apace. The legislation is on schedule for a vote this week after winning approval from a key committee. Meanwhile, some of the critical Republican holdouts who had yet to support the plan are finally warming up to it, after being promised a few concessions.

This is a pity, since those policy concessions are pretty terrible on their merits, and in some cases may make a bad bill even worse.

With 52 seats in the Senate, Republicans can only afford to lose two votes and still pass their tax bill. One of the question marks is Maine’s Susan Collins, whose no-vote helped kill her party’s attempt at Obamacare repeal. Collins has a number of concerns about the tax bill, but perhaps most importantly, she’s upset that the bill would repeal the Affordable Care Act’s individual mandate. This repeal would save money by dropping the number of Americans on government-funded health coverage, but it would also likely rock Obamacare’s insurance exchanges. Collins says she will only support the bill with repeal if Republicans also pass accompanying legislation to keep the markets steady.

Today, in a closed door meeting, President Trump reportedly promised to do just that, indicating that he would back the bipartisan stabilization bill crafted by Patty Murray and Lamar Alexander, as well as legislation Collins herself wrote with Florida’s Bill Nelson.

The problem is that neither of these proposals are actually designed to replace the individual mandate, which keeps down the average cost of insurance by requiring everybody, including the young and healthy, to buy it or pay a tax. Alexander-Murray restores critical subsidy funding that Trump decided to cut off. It is not intended to fix the whole new set of problems that killing the mandate would create. Collins’ and Nelson’s bill is a little better on this score. It would create a reinsurance fund, meant to bring premiums down by covering the costs of the most expensive patients that insurers get stuck with. The problem is, it only appropriates a few billion per year for that purpose, which may not be enough to balance out the effect of ending the mandate.

Overall, Collins’ position on the mandate is a bit like giving a bunch of goons the green light to beat up a kid for his lunch money, so long as they give him back the glasses they stole earlier and maybe hand him an ice pack afterwards. The kid—or, in this case, the individual insurance market—is still getting bloodied.

The next important bunch of wafflers are the small group of Republican deficit hawks, who are supposedly worried that the bill’s obvious budget gimmicks—making the individual tax cuts temporary with a winking promise that they will be renewed in the future—are exactly what they look like, and that the legislation will eventually plunge the U.S. deeper into debt. This cohort includes retiring Senators Jeff Flake of Arizona and Bob Corker of Tennessee, whose political careers crashed and burned after they tangled with the president and ticked off his base, along with Oklahoma’s James Lankford. They want the bill to include a deficit “trigger” that would automatically undo at least some of the bill’s tax cuts if government revenues fall below a certain level. And apparently, party leaders are listening. After initially threatening to withhold his vote, Corker backed the Senate bill in committee today, saying he and other senators had “an outline of an agreement” to set up the trigger, as the Wall Street Journalput it.

Nobody has released any details of how this trigger might work. But the concept seems problematic on its face. Tax collections tend to fall during recessions, so Congress would risk creating an automatic austerity trip wire that would go off every time we had a downturn, making the economic pain worse. Maybe Republicans could design the trigger to avoid that problem, but there are others to consider. The entire point of the GOP’s corporate tax cuts is supposedly to convince companies to invest and pay more. But executives aren’t going to plunk down for new factory equipment or IT systems based on tax cuts that might up and disappear at a moment’s notice. Republicans know this. That’s why they swallowed the politically toxic decision to make all of their tax cuts for families temporary, in order to ensure their corporate reductions could be permanent under the Senate’s budget rules. The trigger would defeat the entire point of that exercise—unless, that is, it only applied to the individual tax cuts. If that was the case, Republicans would look even more like they were throwing middle class families under the bus in order to guarantee Walmart a tax cut, because they would be.

Finally, there’s the rich-private-business-owner caucus: Ron Johnson of Wisconsin and Steve Daines of Montana. Like the House bill, the Senate offers special cuts for what are known as passthrough businesses, which don’t pay the corporate rate, but instead pass their profits through to their owners to pay taxes on them as individual income. (The vast majority of American businesses are organized this way, including everything from real estate developers to corner grocers to law firms to mining companies to hedge funds.) The Senate version is a bit different from the House’s, though, in that the cuts are both smaller overall and are better targeted at actual small businesses, as opposed to large companies like the Trump Organization that just happen to have been organized as passthroughs. Johnson and Daines have decided that this is unacceptable, and want the Senate’s edition to be more generous—even though it would be expensive and require adjustments elsewhere in the bill, which would could upset the aforementioned deficit hawks.

Johnson and Daines have framed their demands as a crusade to protect the interests of “Main Street” businesses. This is absurd, given that about 70 percent of passthrough profits end up in the hands of the top 1 percent of tax payers. And while passthrough lobbyists like to wail about how they deserve the same tax rate as larger corporations, that handily ignores the fact that profits from c-corps are taxed twice—once on the business level, and once as dividends. The argument that passthroughs deserve any tax break at all is extremely weak. The argument that they need a bigger tax break than what the Senate has already offered is even weaker.

As of now, it’s unclear whether GOP leaders will cave to Daines and Johnson’s demands. They might not have to, if they can get the rest of their caucus on board. But Daines said today he was “pleased” with the conversations he’s had with majority leader Mitch McConnell and Johnson voted to pass the bill through committee, suggesting the pair feels like they’re making progress. Republicans might just pass this bill by turning it into even more of a boondoggle giveaway to the rich.

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